3.5.1 - Demand For Labour

Question 1

Who Demands Labour?

Answer 1

Firms.

Question 2

Who Supplies Labour?

Answer 2

Individuals.

Question 3

On The Labour Supply & Demand Diagram, What Happens When Wages Increase?
(2 Points)

Answer 3

~ Workers supply more labour.

~ Firms demand less labour.

Question 4

On The Labour Supply & Demand Diagram, What Happens When Wages Decrease?
(2 Points)

Answer 4

~ Workers supply less labour.

~ Firms demand more labour.

Question 5

The Demand For Labour Is A Derived Demand, What Does This Mean?
(2 Points)

Answer 5

~ Demand for labour depends on the demand for goods and services.

~ If demand for goods increases, then the demand for labour will increase. Vice versa.

Question 6

What Will Firms Depend Their Demand Decisions Of Labour On?

Answer 6

Marginal revenue product (MRP).

Question 7

What Is MRP?

Answer 7

The extra revenue generated when an additional worker is hired.

Question 8

What Is The Acronym, For Factors Influencing The Demand For Labour?

Answer 8

PDPC.

Question 9

Describe PDPC, As The Acronym For Factors Influencing The Demand For Labour
(4 Points)

Answer 9

~ Change in the price of the final product.

~ Change in demand for the final product.

~ Changes in labour productivity.

~ Change in the price of capital.

Question 10

What Does The Elasticity Of Labour Demand Measure?

Answer 10

The responsiveness of labour demanded, given a change in the wage rate.

Question 11

What Is The Acronym, For Elasticity Of Labour Demand?

Answer 11

SECT.

Question 12

Describe SECT, As The Acronym For Elasticity Of Labour Demand
(4 Points)

Answer 12

~ Substitutability of labour for capital.

~ Elasticity of demand for the final product.

~ Cost of labour as a % of total cost.

~ Time period.

Question 13

Describe ‘Substitutability Of Capital For Labour’ As A Factor Influencing The Elasticity Of Labour Demand
(2 Points)

Answer 13

~ More substitutable = elastic, lower wage rates.

~ Less substitutable = inelastic, higher wage rates.

Question 14

Describe ‘Elasticity Of Demand For The Final Product’ As A Factor Influencing The Elasticity Of Labour Demand
(2 Points)

Answer 14

~ Elastic good = if there is higher wages, means higher prices, less sold, less labour derived.

~ Inelastic good = if there is higher wages, means higher prices, less sold, same labour derived.

Question 15

Describe ‘Cost Of Labour As A % Of Total Cost’ As A Factor Influencing The Elasticity Of Labour Demand
(2 Points)

Answer 15

~ Low % of total cost = inelastic, demand would be unresponsive.

~ High % of total cost = elastic, demand would be responsive.

Question 16

Describe ‘Time Period’ As A Factor Influencing The Elasticity Of Labour Demand
(2 Points)

Answer 16

~ SR = inelastic, as firms don’t have the time to substitute capital or find new workers.

~ LR = elastic, as firms have more time to substitute capital and find new workers.